Intellect Design Arena (SaaS - Operative Leverage Makes it attractive)

By Mr. Market (Sidd)

Business - History

Journey of Arun Jain starts in 1980s - with two of his friends-Yogesh Andlay & Vishnu Dusad started Nucleus Software Workshop (The Current Nucleus Software). Initially Nucleus was setup to provide services to Citibank.

Business expanded, they jointly setup Polaris Software in Chennai headed by Arun Jain - Citibank’s business while Vishnu Dusad looking at Nucleus’s overseas business from Singapore.

In 1994, all three of them separated with Arun Jain getting Citi Bank’s business of Polaris, Vishnu Dusad getting Nucleus Software (overseas business) and Yogesh Andlay started Nucleus Software Engineering (a start-up incubator).

• •Founded by Polaris Group

• •The Group has over 25 years experience in

• •providing BFSI technology solutions

• •Intellect Design Arena resulted as a demerger of products business and service business of the Group.

• •Polaris being an IT services company focused on providing services to IP led BFSI players was resulting in a conflict as Intellect itself was an IP led company competing in BFSI space.

Understanding the Business

Intellect basically sells software to Banks & Financial services companies.

12 - Products 57 - Countries Served

7 - Platforms 270+ - Global Banking Clients

4 - Technologies

iGTB (Global Transaction Banking) - Largest and most matured product division - wholesale & corporate banking services like trade finance, liquidity management, payments etc.

iGCB (Global Consumer Banking) - Retail banking, private banking and Central Banking like core banking software, cards, lending etc.

iRTM (Risk, Treasury & Wealth Management) - Treasury, risk management and asset management. youngest & smallest product line currently.

iSEEC (Insurance & Data) - Distribution, underwriting and claims. This segment also extends to other areas of BFSI space for data solutions. Products under this segment are pure SaaS offerings. Intellect’s youngest & smallest product line currently.

  NOTE: 3 & 4 are merged together Intellect AI( Wealth & Insurance )

Intellect Market Segments & Competitions

Market Segments

Peers

iGCB (Global Consumer Banking) iGTB (Global Transaction Banking)

•Temenos, Modern Treasury,

•nCino, TietO,

•Thought Machine Backbase,

ACI

IntellectAI (Insurance & Wealth) Previously

Intellect SEEC

•Groundspeed,

•Convr,

•Rossum.ai,

•Clarity.ai,

•Avaloq

Business Vertical – Products & Services

Industry Tailwinds Shift from License to SaaS – License Model (Product)

• Licenses typically are long term in nature 5-7-10 years.

• Implementation phase - helps its customer setup the product & get it running - include training on how to use the product, integration with client’s other products/systems and some customization as per client’s need.

• AMC, - on-going support, smaller updates & bug fixes to the customer. Active till using the product and is paid annually (mostly in advance) - 20% of License fee in value.

• No operating leverage.

• No Incrementally costs involved.

• Less R&D cost involved in upgrading

Industry Shift from License to SaaS – Saas Model (Platform)

Eg: How Adobe changed from Product to Subscription Model

iGTB – Products & Market Size

Intellect iGTB Addressable Market = $7 bn and growing at 6.5% CAGR

Competition

Platforms & Technology

• iTurmeric works as an integrator to connect Intellect products with 12 other leading core banking systems making it as value added service which helps business win more deals.

• DTB and LMS under iGTB are the products that has reached critical mass i.e. Good Reference, Premium Pricing, Large Client Base.

• Payments and Trade Solutions are expected to reach up a scale in coming year.

iGCB – Products & Market Size

2022 - Intellect Addressable Market - $ 10.8 Bn, growing at a CAGR of 10%

2023 - Intellect Addressable Market - $ 11 Bn, growing at a CAGR of 8%

Platforms

iKredit360

• It is a cloud native solution implemented on private google cloud

• API’s - 129 ; PBC - 11;  Interfaces - 67 ; Payload - Collective payload of upto 60 MB / proposal ; Volumes - 70,000 applications a month ; Amount Disbursed - INR 7000 cr a month.

MACH.ai

• MACH.ai open finance-enabled core banking platform with pre-integrated marketplace for UK & Europe ready democratises the financial services space.

• MACH - Microservices, API First, Cloud Native, Headless Architecture

• Headless - User experience. Applications in multiple devices - Laptops, Tablets, Mobile, IoT device, VR sets, smartwatches, etc.

• Allowing for complete design freedom in creating the user interface and for connecting to other channels and devices.

IntellectAI (Insurance & Wealth)

• Intellect’s addressable market considered to be around $100m

• Global Commercial Insurance market - projected to grow to  $1.61 trillion  by 2030, 9.7% CAGR by 2030

GeM Platform(Government eMarketplace) – 5 year deal

• · Provides the tools of e-bidding, reverse e-auction and demand aggregation - public procurement platform between suppliers and buyers - transparent Government to Business (G2B) - supply & procurement of goods and services.

• ·This deal is up to 2024. December 23 to be exact. Extension is a part of the proposal. Looking forward - extended by another 2 years.

• ·Lower margin.

• ·Milestones Based Revenue - GEM also pay us X percentage upfront and Y percent after the product gets delivered when the payment is marked on the system.

Business Understanding Platform

3 category of Revenue,

•  B1 - Licensed business,

•  B2 - Platform business - an annual subscription model

•  B3 - Platform - transaction basis of percentage (Volume)

  Eg: Platform like GEM, and we charge on transactions (volume of the customer).

• Licensed Linked Revenue – AMC (License + Platform + AMC Revenues)

• Annual Recurring Revenue – B2 + B3 + AMC

US typical platform investment & Breakeven Point

A typical platform investment for building a platform close to $5 Mn per year & the cost between $5 - $10 Mn per year on a constant basis on the platform. 

If you look at the graph a first period when you are at only 2 customer or 3 Customer, your cost stays 5Mn.

2 Customer revenues - 1Mn, one and a half million – Take 3 to 4 years to match the revenue between investment and what the annual subscription revenue start coming in but when 5 to 7 customers at $1 Mn each will be good to suffice a subscription-based platform investment.

So, once we sign 5 to 7 customers, the platforms could be break even, but then 7 to 20 customers, my incremental investments in the platform are not more than 20%.

5 stages of Products

• Stage 1-2 : Design and Development Phase -  RnD & Sales and Marketing

  Costs with No or Min. Revenue

• Stage 3 : Go-to Market and Acceptance Phase - Sales and Marketing Costs

   to acquire customers. towards breakeven of the product level.

• Stage 4-5 : Maturity and Monetization Phase - The product is positioned and got enough reference in the market, operating leverage starts kicking-in – No the incremental cost is required(Like stage 1-3). Premium Pricing, Partnerships & Account Mining can take place.

Business Strategy

In 2016 - Strategy is to go to one of the top three banks to the rest of the country. Used this and succeeded in 

  India    UK   US  Canada

  UAE       

• Advanced Market (Americas, Europe, Australia, New Zealand, Singapore, Japan)

• Emerging Market (UAE, Qatar and Oman, Turkey, Thailand, Philippines, China, countries in Eastern Europe, Latin America, Vietnam, Cambodia, Indonesia, Bangladesh, Sri Lanka, Eastern & Western Africa)

Market Wise Product or Platform

Certain markets are suitable for platform & Certain markets are suitable for license and certain kind of customers are suitable for license.

•Tier 1 customers are suitable for license.

•Tier 2 , tier 3 customers are for platforms.

US Growth (North America market to grow by more than 50%)

• •U.S. market we have 2 platforms, one is Xponent which is underwriting platform. We are working with close to 22 prospects in the US market led by iSeec  and we have iGTB  platform.

• •Canadian market has got all the Intellect Suite products including treasury.(Intellect with iGTB, iGCB ad iRTM products )

• EUROPE  - Modernising their old systems(Core banking transformation). Upgrading with an extraordinarily strong architectural mindset. With integrated MACH compliant Digital Core, Lending and Credit cards - data AI, machine learning, cloud, micro services, cloud compliance.

AFRICA

• Quantum banking is a leading product to get entry into various countries like Mauritius, Mozambique, Mauritania, Madagascar.    Digital Core , Lending and Digital Transaction Banking  are getting traction. 5 leading banks in Kenya market.

APAC

• With 9 banks in Vietnam, 9 banks in Philippines, 7 banks in Malaysia, 4 banks in Indonesia, we are also participating in Lending, Core Banking, Wealth & Treasury, DTB opportunities.

India & South Asia

• We at Intellect provide technology to support critical Financial infrastructure like RBI, GeM, LIC, MFU, major PSU banks and 9 out of Top 10 Private Banks. SBI - WealthQube.

Business Understanding Competitive Edge

Competitive Edge – Implementation Cycle

• My implementation cost for winning, the deal will be lower because of turmeric I'm using for reducing the cycle time - result into the lowering of the implementation revenue. What we're trying to do now is that we want to participate in a more cross selling propositions. Identified 20 accounts - looking for digital transformation using our composable & contextual technology. And those revenue as of now, get booked under implementation revenue - Future may create a line item called digital transformation line item - but yes, implementation revenue will come down because the cycle time is coming down.

• Eg: A deal of million dollar, bidding $600,000 for license, customer has a finite budget of million dollar. Now 65 to 70% on license and 30% to implementation. Earlier, it used to be 50-50, or 45 for licensing and 55 for the implementation.

 Globally

• A typical digital transformation takes 18 months to 24 months. Globally, that's the benchmarking of digital transaction banking.

• When we sign that deal, after signing that deal, you have observed the AMC takes 2 years to come in. It's because 18 months is a cycle time for the implementation. - We are able to implement the entire cycle in 6 months’ time.

Product Implementation Cycle

• Typically between 3-6 months to get flowing because when somebody starts consuming the platform the payment starts from the day he is consuming the platform, so the initial product business which used to call in implementation, so you used to have two revenue streams earlier.

• Revenue stream licences booked on the day looking, and if you have to make somebody live in 6 months' time

• Then 6 months was the implementation cycle time.

Platform Implementation Cycle

• Platform deal, we reduce the cycle time of going live. Some situations are two months, some situations 3 months, and some situations 4 months, depending upon the various platforms when they become live, the platform revenue gets booked.

Market Trend Analysis - Global

Market Trend Analysis - Domestic

Universal Banking - Core - Sales League Table

Temenos Core Banking Services (Temenos Transact) maintained its leadership in the Universal Banking - 49 new customer deals.

 Temenos has had a stable performance over the years as the vendor signed 48 new customers in 2020.

Africa and Europe are the significant contributors to Temenos as ~50% of its deals came from these two regions.

 Infosys Finacle captured 2nd place by recording eight deals in 2021. In 2020, Infosys recorded the highest number of deals for its Finacle Digital Banking Solution Suite.

Other consistent performers in this category are Azentio Islamic Banking of Azentio Software (3i Infotech), TCS BaNCS of TCS and Fusion Essence of Finastra. Azentio Islamic Banking and TCS BaNCS reported seven deals each, while Fusion Essence reported six deals.

 The share of other vendors has increased this year compared to the previous years.

Lending - Retail - Sales League Table

• •With 28 deals, Intellect Digital Lending of Intellect Design Arena secured the top spot and emerged as a market leader in this category.

• •Share of Intellect increased from 18% in 2020 to 41% in 2021. Intellect reported most of its deals in APAC, followed by the Middle East.

• •Finacle Digital Banking Solution Suite of Infosys Finacle and Azentio Lending of Azentio Software (3i Infotech) reported eight deals each and secured 2nd place in the ranking order.

• •Infosys Finacle also reported most of its deals from the APAC region, while Azentio Software (3i Infotech) bagged most of the deals from the Middle East.

Lending - Retail - Sales League Table

•With 28 deals, Intellect Digital Lending of Intellect Design Arena secured the top spot and emerged as a market leader in this category.

•Share of Intellect increased from 18% in 2020 to 41% in 2021. Intellect reported most of its deals in APAC, followed by the Middle East.

•Finacle Digital Banking Solution Suite of Infosys Finacle and Azentio Lending of Azentio Software (3i Infotech) reported eight deals each and secured 2nd place in the ranking order.

•Infosys Finacle also reported most of its deals from the APAC region, while Azentio Software (3i Infotech) bagged most of the deals from the Middle East.

Annual Sales League Table 2022

Total 146 Players

Global Player Comparisons

Global Category Leaders

Global Player Comparisons

Operating Leverage

• •Cost haven’t reduced in absolute terms, overall cost base have expanded, but relative to growth in Revenues, these costs are not expanding that fast.

• •Operating leverage is playing out not because of savings in costs but because of the acceleration in revenues.

• •Only iGTB and iGCB has been well established and One more entire segment of the business needs to be improved.

• •Overall R&D for Top players are at Minimum 15%

Gross Margin

Due to large number of products and Expansion of customers that Intellect has tried to bring into the market overtime.

The initial years of any product the gross margins are low, reason being that one cannot expect to charge premium pricing for a new product, it is only overtime as the product establishes itself that a company can charge higher for License and since AMC is based on License value, lower Licence value also results in lower AMC.

Risk - Guidance Missed

• • It becomes very difficult for market to believe in what the management is saying and even when numbers do come out well, it becomes difficult for market to believe the sustainability of such numbers.

• •Except 4-5 Products, Other Products are yet to still reach a scale and any changes in technology can be a risk for their positioning in market.

• •Moving to Digital and Buy vs Build has been a major driving force of high growth in last couple of years. Slowness in adoption rate can put pressure on growth and margins given multiple products are in investment phase and are being capitalized on balance sheet.

Management Details

Mr. Arun JAIN (CHAIRMAN & MD) - Founder of Polaris Group

• •Started journey by setting up Nucleus

• •Software Workshop in 1986

• •Chairperson IIT Ranchi

• •Electrical Engineering from the Delhi College

• •Dronacharya Award 2019 by TiECON Chennai

• •Won Several other awards

Manish Maakan - iGTB(Intellect Global Transaction Banking)

• •Past experience in Whirlpool & General Electric

• •Financial technologies for Banks

• •Helps Banks in providing solution like Cash Management, Cashflow management, Banking transaction, Payments, Collections & Receivables, Liquidity Management, etc.

• •Over 175 product installations in over 70 banks

• •Serving clients in 85 countries

Rajesh Saxena - iGCB

• • He has Expertise in Retail Banking

• • Prior experience of working in Citi Bank & CEO of American Express, India

• • Provides Retail Banking Solutions like CBX Retail, Digital Core, Digital lending, Digital Wealth & Quantum Central Banking

• • Target Market is Europe

• • Product line development strategy

Banesh Prabhu  - iSEEC

• •Experience of 23 years with Citigroup,

• •American Express and Siam Commercial Bank, Chartered Accountant

• •Provides solutions to insurance Companies

• •Products like CBX-I helps clients to integrate everything

•  at one platform